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Monday, July 18, 2016

Islamic Finance Expanding Its Footprint In Oman

Growth of Islamic banking is far outstripping that of
the conventional banking segment with Islamic banking assets up more than 62%
year-on-year (y-o-y) at the end of March, according to a report issued by the
Central Bank of Oman (CBO) in mid-May.

New rules released by the Capital Market Authority
(CMA) in April regarding the issuance of sukuk should further broaden the
segment’s base by encouraging corporate issues.

Rise in Islamic
banking

Total assets held by Islamic banks and the Islamic
banking windows of conventional lenders in March amounted to OR2.5bn ($6.5bn),
compared to OR1.5bn ($3.9bn) one year earlier, according to the CBO.

This took the Islamic banking’s market share from
5.1% of the financial system’s overall assets in 2015 to 7.8% by March 2016.

Financing to the public and private sector is also on
the rise, with sharia-compliant entities having extended OR1.93bn ($5bn) worth
of financing as of end-March, up 58% over the OR1.2bn ($3.1bn) recorded in
March of last year.

Growth was also strong on a month-on-month basis,
with assets held by Islamic banks and windows up OR100m ($260m) over February,
deposits expanding by OR90m ($234m) and financing rising by OR80m ($208m).

For their part, sukuk are expected to play an
important role in the country’s Islamic financial markets as they offer an
alternate means of fundraising for local companies, according to Abdulaziz Al
Balushi, group CEO of Ominvest, an Oman-based investment company.

“Growth in total sukuk issuance is driven by a number
factors, including: fiscal deficits led by low oil prices – necessitating
government borrowing in the local and international markets, corporates seeking
alternative funding options in the wake of tighter liquidity and Islamic
financial institutions’ desire to grow their financing books,” he told OBG.

The growing penetration of sharia-compliant finance
is in line with a forecast made by ratings agency Moody’s late last year.

In its November outlook on the Omani financial
sector, Moody’s predicted the Islamic banking segment would continue to gain
traction, with Islamic assets to account for between 10% and 12% of total
banking assets within the next two years.

The sector will benefit from expansion in new lending
and through the conversion of customers from conventional to Islamic banking
services, the report said.

Conventional
competition

In contrast with the performance of the Islamic
segment of the market, assets of conventional commercial banks rose by 9.1%
y-o-y to the end of March to OR28.6bn ($74.3bn).

While still a strong result, the pace of expansion of
the Islamic segment indicates growing demand for sharia-compliant products in
the marketplace.

Oman’s Islamic banking sector has two dedicated
sharia-compliant banks, Bank Nizwa and alizz islamic bank, which both began
commercial operations in 2013.

In addition, six of Oman’s seven domestic
conventional banks have opened Islamic banking windows, giving them access to
the growing market for sharia-compliant products.

New regulations to
spur corporate sukuk

Looking ahead, the country’s Islamic financial sector
stands to benefit from new regulations from the CMA that clarify requirements
for issuing sukuk and provide a legal framework.

In particular, the new rules aim to provide greater
transparency and protection to investors in sukuk transactions by building on
existing codes covering company law and capital markets.

The regulations, which came into effect in mid-April,
introduce a trust structure and terms for sukuk programmes, providing
flexibility for corporations looking to raise money through sukuk.

Importantly, there are no restrictions on the amount
of the sukuk based on the company’s capital.

The new regulations are expected to expand the range
of investment instruments available in the sector, gradually generating greater
investor interest, according to Sheikh Abdullah bin Al Salmi, executive
president of the CMA.

“Companies have been waiting for this guidance, and
there are a number of sukuk in the pipeline, which have been aided by the
issuance of the first government sukuk,” Sheikh Abdullah told OBG. “However,
most corporations will likely wait a bit longer for the government to issue
more in order to provide a benchmark for corporate bonds.”

The CMA is hopeful that codifying sukuk requirements
will further develop Oman’s Islamic financial sector and the broader capital
markets by giving companies and investors a more stable fundraising platform.

“A vibrant fixed-income market is essential to the
development, financial stability and diversification of the regional economy,
including Oman,” Sheikh Abdullah said in early June. “This is also an integral
part of the overall strategy of the CMA to enable the capital market to play
its vital role as an alternative fundraising platform for companies in the economic
development of Oman.”

About Me

I graduated from the French University in Beirut (St Joseph) specialising in Political and Economic Sciences. I started my working life in 1973 as a reporter and journalist for the pan-Arab magazine “Al-Hawadess” in Lebanon later becoming its Washington, D.C. correspondent. I subsequently moved to London in 1979 joining “Al-Majallah” magazine as its Deputy Managing Editor. In 1984 joined “Assayad” magazine in London initially as its Managing Editor and later as Editor-in-Chief. Following this, in 1990 I joined “Al-Wasat” magazine (part of the Dar-Al-Hayat Group) in London as a Managing Editor. In 2011 I became the Editor-In-Chief of Miraat el-Khaleej (Gulf Mirror). In July 2012 I became the Chairman of The Board of Asswak Al-Arab Publishing Ltd in UK and the Editor In Chief of its first Publication "Asswak Al-Arab" Magazine (Arab Markets Magazine) (www.asswak-alarab.com).

I have already authored five books. The first “The Tears of the Horizon” is a love story. The second “The Winter of Discontent in The Gulf” (1991) focuses on the first Gulf war sparked by Saddam Hussein’s invasion of Kuwait. His third book is entitled “Israeli-Palestinian Conflict: From Balfour Promise to Bush Declaration: The Complications and the Road to a Lasting Peace” (March 2008). The fourth book is titled “How Iran Plans to Fight America and Dominate the Middle East” (October 2008) And the fifth and the most recent is titled "JIHAD'S NEW HEARTLANDS: Why The West Has Failed To Contain Islamic Fundamentalism" (May 2011).

Furthermore, I wrote the memoirs of national security advisor to US President Ronald Reagan, Mr Robert McFarlane, serializing them in “Al-Wasat” magazine over 14 episodes in 1992.

Over the years, I have interviewed and met several world leaders such as American President Bill Clinton, British Prime Minister Margaret Thacher, Late King Hassan II of Morocco, Late King Hussein of Jordan,Tunisian President Zein El-Abedine Bin Ali, Lybian Leader Moammar Al-Quadhafi,President Amine Gemayel of Lebanon,late Lebanese Prime Minister Rafic Hariri, Late Palestinian Chairman Yasser Arafat, Haitian President Jean Claude Duvalier, Late United Arab Emirates President Sheikh Zayed Bin Sultan Al Nahyan,Algerian President Shazli Bin Jdid, Jamaican Prime Minister Edward Siyagha and more...